SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-13447
ANNALY MORTGAGE MANAGEMENT, INC.
(Exact Name of Registrant as Specified in its Governing Instruments)
MARYLAND 22-3479661
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation of organization)
12 East 41st Street, Suite 700
New York, New York 10017
(Address of Principal Executive Offices)
(212) 696-0100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
At March 20, 2000 the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $284,040,669
The number of shares of the Registrant's Common Stock outstanding on March 20,
2001 was 25,696,459
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement dated March 26, 2000,
issued in connection with the 2001 Annual Meeting of Stockholders of the
Registrant to be held on May 17, 2001 are incorporated by reference into
Part III.
EXPLANATORY NOTE:
This Form 10-K/A is being filed to correct the date of the auditor's report.
ANNALY MORTGAGE MANAGEMENT, INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 1
FINANCIAL STATEMENTS F-1
SIGNATURES 3
EXHIBIT INDEX 4
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements.
2. Schedules to Financial Statements:
All financial statement schedules not included have been omitted because
they are either inapplicable or the information required is provided in our
Financial Statements and Notes thereto, included in Part II, Item 8, of this
Annual Report on Form 10-K.
3. Exhibits:
3.1 Articles of Incorporation of the Registrant (incorporated by reference
to Exhibit 3.1 to our Registration Statement on Form S-11 (Registration
No. 333-32913) filed with the Securities and Exchange Commission on
August 5, 1997).
3.2 Articles of Amendment and Restatement of the Articles of Incorporation
of the Registrant (incorporated by reference to Exhibit 3.2 to our
Registration Statement on Form S-11 (Registration No. 333-32913) filed
with the Securities and Exchange Commission on August 5, 1997).
3.3 Bylaws of the Registrant, as amended (incorporated by reference to
Exhibit 3.3 to our Registration Statement on Form S-11 (Registration No.
333-32913) filed with the Securities and Exchange Commission on August
5, 1997).
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 to Amendment No. 1 to our Registration Statement on Form
S-11(Registration No. 333-32913) filed with the Securities and Exchange
Commission on September 17, 1997.
10.1 Purchase Agreement, dated February 12, 1997, between the Registrant and
Freedman, Billings, Ramsey & Co., Inc. ("FBR") (incorporated by
reference to Exhibit 10.1 to our Registration Statement on Form S-11
(Registration No. 333-32913) filed with the Securities and Exchange
Commission on August 5, 1997).
10.2 Registration Rights Agreement, dated February 12, 1997, between the
Registrant and FBR (incorporated by reference to Exhibit 10.2 to our
Registration Statement on Form S-11 (Registration No. 333-32913) filed
with the Securities and Exchange Commission on August 5, 1997).
10.3 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit
10.3 to our Registration Statement on Form S-11 (Registration No.
333-32913) filed with the Securities and Exchange Commission on August
5, 1997).
10.4 Employment Agreement, effective as of January 27, 1997, between the
Company and Michael A.J. Farrell (incorporated by reference to Exhibit
10.4 to our Registration Statement on Form S-11 (Registration No.
333-32913) filed with the Securities and Exchange Commission on August
5, 1997).
10.5 Employment Agreement, effective as of January 27, 1997, between the
Company and Timothy J. Guba (incorporated by reference to Exhibit 10.5
to our Registration Statement on Form S-11 (Registration No. 333-32913)
filed with the Securities and Exchange Commission on August 5, 1997).
1
10.6 Employment Agreement, effective as of January 27, 1997, between the
Company and Wellington J. St. Claire (incorporated by reference to
Exhibit 10.6 to our Registration Statement on Form S-11 (Registration
No. 333-32913) filed with the Securities and Exchange Commission on
August 5, 1997).
10.7 Form of Master Repurchase Agreement (incorporated by reference to
Exhibit 10.7 to our Registration Statement on Form S-11 (Registration
No. 333-32913) filed with the Securities and Exchange Commission on
August 5, 1997).
10.8 Form of Purchase Agreement between the Company and the purchasers in the
Direct Offering (incorporated by reference to Exhibit 10.8 to our
Registration Statement on Form S-11 (Registration No. 333-32913) filed
with the Securities and Exchange Commission on August 5, 1997).
10.9 Employment Agreement, effective as of November 1, 1997, between the
Company and Kathryn F. Fagan (incorporated by reference to Exhibit 10.9
to our Form 10-K for the fiscal year ended December 31, 1997).
10.10 Employment Agreement, effective as of January 1, 2001, between the
Company and Jennifer A. Stephens (incorporated by reference to Exhibit
10.10 to our Form 10-K for the fiscal year ended December 31, 2000).
23.1 Consent of Independent Accountants.*
* Filed herewith.
Exhibit Numbers 10.3-10.6, 10.9 and 10.10 are management contracts or
compensatory plans required to be filed as Exhibits to this Form 10-K.
(b) Reports on Form 8-K
We have not filed any reports on Form 8-K during the last quarter of the
period covered by this report.
2
Annaly Mortgage Management, Inc.
Independent Auditors' Report
Financial Statements
Years Ended December 31, 2000, 1999 and 1998
F-1
Annaly Mortgage Management, Inc.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998:
Balance Sheets 2
Statements of Operations 3
Statements of Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6-14
F-2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Annaly Mortgage Management, Inc.
We have audited the accompanying statements of financial condition of Annaly
Mortgage Management, Inc. (the "Company") as of December 31, 2000 and 1999, and
the related statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide are
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2000 and 1999
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2000 , in conformity with accounting principles
generally accepted in the United States of America.
New York, New York
February 5, 2001
F-3
ANNALY MORTGAGE MANAGEMENT, INC.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2000 AND 1999
- --------------------------------------------------------------------------------
ASSETS 2000 1999
CASH AND CASH EQUIVALENTS $ 113,061 $ 71,918
MORTGAGE-BACKED SECURITIES - At fair value 1,978,219,376 1,437,792,631
RECEIVABLE FOR MORTGAGE-BACKED
SECURITIES SOLD 44,933,631 46,402,360
ACCRUED INTEREST RECEIVABLE 11,502,482 6,857,683
OTHER ASSETS 260,238 197,896
--------------- ---------------
TOTAL ASSETS $ 2,035,028,788 $ 1,491,322,488
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Repurchase agreements $ 1,628,359,000 $ 1,338,295,750
Payable for Mortgage-Backed Securities purchased 258,798,138 38,154,012
Accrued interest payable 8,314,414 6,682,687
Dividends payable 3,630,745 4,753,461
Accounts payable 284,105 164,100
--------------- ---------------
Total liabilities 1,899,386,402 1,388,050,010
--------------- ---------------
STOCKHOLDERS' EQUITY:
Common stock: par value $.01 per share;
100,000,000 authorized, 14,522,978 and 13,581,316
shares issued and outstanding, respectively 145,230 135,813
Additional paid-in capital 147,844,861 140,262,657
Accumulated other comprehensive loss (13,044,259) (37,568,510)
Retained earnings 696,554 442,518
--------------- ---------------
Total stockholders' equity 135,642,386 103,272,478
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2,035,028,788 $ 1,491,322,488
=============== ===============
See notes to financial statements.
F-4
ANNALY MORTGAGE MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
INTEREST INCOME:
Mortgage-Backed Securities $ 109,739,302 $ 89,801,353 $ 89,985,526
Other interest income 11,104 10,641 105
------------- ------------ ------------
Total interest income 109,750,406 89,811,994 89,985,631
INTEREST EXPENSE:
Repurchase agreements 92,901,697 69,846,206 75,735,280
------------- ------------ ------------
NET INTEREST INCOME 16,848,709 19,965,788 14,250,351
GAIN ON SALE OF MORTGAGE-BACKED
SECURITIES 2,025,205 454,782 3,344,106
GENERAL AND ADMINISTRATIVE EXPENSES 2,286,626 2,281,290 2,105,534
------------- ------------ ------------
NET INCOME 16,587,288 18,139,280 15,488,923
------------- ------------ ------------
OTHER COMPREHENSIVE GAIN (LOSS):
Unrealized gain (loss) on available-for-sale securities 26,549,456 (30,709,453) (5,083,920)
Less reclassification adjustment for gains included in net
income (2,025,205) (454,782) (3,344,106)
------------- ------------ ------------
Other comprehensive gain (loss) 24,524,251 (31,164,235) (8,428,026)
------------- ------------ ------------
TOTAL COMPREHENSIVE INCOME (LOSS) $ 41,111,539 $(13,024,955) $ 7,060,897
============= ============ ============
NET INCOME PER SHARE:
Basic $ 1.18 $ 1.41 $ 1.22
============= ============ ============
Diluted $ 1.15 $ 1.35 $ 1.19
============= ============ ============
AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 14,089,436 12,889,510 12,709,116
============= ============ ============
Diluted 14,377,459 13,454,007 13,020,648
============= ============ ============
See notes to financial statements.
F-5
ANNALY MORTGAGE MANAGEMENT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
Common Additional Other
Stock Paid-in Comprehensive Retained Comprehensive
Par Value Capital Income Earnings Income Total
BALANCE, DECEMBER 31, 1997 $127,139 $132,705,765 $ -- $ 229,623 $ 2,023,751 $135,086,278
Net income -- -- 15,488,923 15,488,923 -- --
Other comprehensive income:
Unrealized net losses on securities,
net of reclassification adjustment -- -- (8,428,026) -- (8,428,026) --
------------
Comprehensive income -- -- $ 7,060,897 -- -- 7,060,897
============
Exercise of stock options 441 194,658 -- -- 195,099
Additional cost of initial public offering -- (130,248) -- -- (130,248)
Stock buyback (1,096) (902,067) -- -- (903,163)
Dividends declared for the year ended
December 31, 1998, $1.22 per share -- -- (15,437,554) -- (15,437,554)
-------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 126,484 131,868,108 280,992 (6,404,275) 125,871,309
Net income -- -- $ 18,139,280 18,139,280 --
Other comprehensive income:
Unrealized net losses on securities,
net of reclassification adjustment -- -- (31,164,235) -- (31,164,235)
------------
Comprehensive loss -- -- $(13,024,955) -- -- (13,024,955)
============
Exercise of stock options 572 232,704 -- -- 233,276
Proceeds from direct purchase 8,757 8,161,845 -- -- 8,170,602
Dividends declared for the year ended
December 31, 1999, $1.38 per share -- -- (17,977,754) -- (17,977,754)
-------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 135,813 140,262,657 442,518 (37,568,510) 103,272,478
Net income $ 16,587,288 16,587,288
Other comprehensive income:
Unrealized net gains on securities,
net of reclassification adjustment -- -- 24,524,251 -- 24,524,251
------------
Comprehensive income -- -- $ 41,111,539 -- -- 41,111,539
============
Exercise of stock options 475 198,287 -- -- 198,762
Proceeds from direct purchase 8,942 7,383,917 -- -- 7,392,859
Dividends declared for the year ended
December 31, 2000, $1.15 per share -- -- (16,333,252) -- (16,333,252)
-------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2000 $145,230 $147,844,861 $ 696,554 $(13,044,259) $135,642,386
======== ============ ============ ============ ============
See notes to financial statements.
F-6
ANNALY MORTGAGE MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,587,288 $ 18,139,280 $ 15,488,923
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of mortgage premiums and discounts, net 2,646,753 6,103,239 8,235,371
Gain on sale of Mortgage-Backed Securities (2,025,205) (454,782) (3,344,106)
Increase in accrued interest receivable (4,644,799) (98,310) (1,443,182)
Decrease (increase) in other assets (62,342) 36,988 (100,958)
Increase in accrued interest payable 1,631,727 1,630,061 60,179
Increase (decrease) in accounts payable 120,005 24,864 (62,740)
---------------- ---------------- ----------------
Net cash provided by operating activities 14,253,427 25,381,340 18,833,487
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Mortgage-Backed Securities (952,737,643) (559,695,956) (1,420,592,798)
Proceeds from sale of Mortgage-Backed Securities 489,809,698 122,552,293 568,553,814
Principal payments on Mortgage-Backed Securities 168,516,759 362,657,549 486,337,605
---------------- ---------------- ----------------
Net cash used in investing activities (294,411,186) (74,486,114) (365,701,379)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements 14,196,953,221 11,202,660,000 11,506,566,000
Principal payments on repurchase agreements (13,906,889,971) (11,144,874,250) (11,144,925,000)
Proceeds from exercise of stock options 198,762 233,276 195,100
Proceeds from direct equity offering 7,392,859 8,170,602 --
Additional cost of initial public offering -- -- (130,248)
Purchase of treasury stock -- -- (903,163)
Dividends paid (17,455,969) (17,081,956) (14,376,949)
---------------- ---------------- ----------------
Net cash provided by financing activities 280,198,902 49,107,672 346,425,740
---------------- ---------------- ----------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 41,143 2,898 (442,152)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 71,918 69,020 511,172
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 113,061 $ 71,918 $ 69,020
================ ================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 91,269,970 $ 68,216,145 $ 75,675,101
================ ================ ================
NONCASH FINANCING ACTIVITIES:
Net change in unrealized loss on available-for-sale securities $ 24,524,251 $ (31,164,235) $ (8,428,026)
================ ================ ================
Dividends declared, not yet paid $ 3,630,745 $ 4,753,461 $ 3,857,663
================ ================ ================
See notes to financial statements
F-7
ANNALY MORTGAGE MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Annaly Mortgage Management, Inc. (the "Company") was incorporated in
Maryland on November 25, 1996. The Company commenced its operations of
purchasing and managing an investment portfolio of Mortgage-Backed
Securities on February 18, 1997, upon receipt of the net proceeds from the
private placement of equity capital. An initial public offering was
completed on October 14, 1997.
A summary of the Company's significant accounting policies follows:
Cash and Cash Equivalents - Cash and cash equivalents includes cash on hand
and money market funds. The carrying amounts of cash equivalents
approximates their value.
Mortgage-Backed Securities - The Company invests primarily in mortgage
pass-through certificates, collateralized mortgage obligations and other
mortgage-backed securities representing interests in or obligations backed
by pools of mortgage loans (collectively, "Mortgage-Backed Securities").
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, requires the Company to classify
its investments as either trading investments, available-for-sale
investments or held-to-maturity investments. Although the Company generally
intends to hold most of its Mortgage-Backed Securities until maturity, it
may, from time to time, sell any of its Mortgage-Backed Securities as part
of its overall management of its balance sheet. Accordingly, this
flexibility requires the Company to classify all of its Mortgage-Backed
Securities as available-for-sale. All assets classified as
available-for-sale are reported at fair value, based on market prices
provided by certain dealers who make markets in these financial
instruments, with unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity.
Unrealized losses on Mortgage-Backed Securities that are considered other
than temporary, as measured by the amount of decline in fair value
attributable to factors other than temporary, are recognized in income and
the cost basis of the Mortgage-Backed Securities is adjusted. There were no
such adjustments for the years ended December 31, 2000, 1999, and 1998.
Interest income is accrued based on the outstanding principal amount of the
Mortgage-Backed Securities and their contractual terms. Premiums and
discounts associated with the purchase of the Mortgage-Backed Securities
are amortized into interest income over the lives of the securities using
the interest method.
Mortgage-Backed Securities transactions are recorded on the trade date.
Purchases of newly issued securities are recorded when all significant
uncertainties regarding the characteristics of the securities are removed,
generally shortly before settlement date. Realized gains and losses on
Mortgage-Backed Securities transactions are determined on the specific
identification basis.
F-8
Credit Risk - At December 31, 2000 and 1999, the Company has limited its
exposure to credit losses on its portfolio of Mortgage-Backed Securities by
only purchasing securities issued by Federal Home Loan Mortgage Corporation
("FHLMC"), Federal National Mortgage Association ("FNMA"), or Government
National Mortgage Association ("GNMA"). The payment of principal and
interest on the FHLMC and FNMA Mortgage-Backed Securities are guaranteed by
those respective agencies and the payment of principal and interest on the
GNMA Mortgage-Backed Securities are backed by the full-faith-and-credit of
the U.S. government. At December 31, 2000 and 1999, all of the Company's
Mortgage-Backed Securities have an implied "AAA" rating.
Income Taxes - The Company has elected to be taxed as a Real Estate
Investment Trust ("REIT") and intends to comply with the provisions of the
Internal Revenue Code of 1986, as amended (the "Code") with respect
thereto. Accordingly, the Company will not be subjected to Federal income
tax to the extent of its distributions to shareholders and as long as
certain asset, income and stock ownership tests are met.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Recent Accounting Pronouncements - The Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, as mended by SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date for FASB Statement No. 133, and No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging
Activities, and as interpreted by the FASB and the Derivatives
Implementation Group through Statement No. 133, Implementation Issues, as
of January 1, 2000. The Company has no derivative instruments or any
embedded derivative instruments that require bifurcation. Management has
determined that the adoption of SFAS No. 133 has no material effect on the
Company's financial statements.
F-9
2. MORTGAGE-BACKED SECURITIES
The following table pertains to the Company's Mortgage-Backed Securities
classified as available-for-sale as of December 31, 2000, which are carried
at their fair value:
Federal Federal Government Total
Home Loan National National Mortgage-
Mortgage Mortgage Mortgage Backed
Corporation Association Association Securities
Mortgage-Backed
Securities, gross $ 1,029,045,622 $ 853,777,836 $ 85,143,889 $ 1,967,967,347
Unamortized discount (221,944) (767,116) -- (989,060)
Unamortized premium 11,203,043 11,569,619 1,512,687 24,285,349
--------------- --------------- --------------- ---------------
Amortized cost 1,040,026,721 864,580,339 86,656,576 1,991,263,636
Gross unrealized gains 2,220,525 798,984 -- 3,019,509
Gross unrealized losses (5,426,076) (9,503,333) (1,134,360) (16,063,769)
--------------- --------------- --------------- ---------------
Estimated fair value $ 1,036,821,170 $ 855,875,990 $ 85,522,216 $ 1,978,219,376
=============== =============== =============== ===============
Gross Unrealized Gross Unrealized Estimated Fair
Amortized Cost Gain Loss Value
Adjustable Rate 1,475,409,337 12,565 (7,819,597) 1,467,602,305
Fixed Rate 515,854,299 3,006,944 (8,244,172) 510,617,071
--------------- --------------- --------------- ---------------
Total $ 1,991,263,636 $ 3,019,509 $ (16,063,769) $ 1,978,219,376
=============== =============== =============== ===============
F-10
The following table pertains to the Company's Mortgage-Backed Securities
classified as available-for-sale as of December 31, 1999, which are carried
at their fair value:
Federal Federal Government Total
Home Loan National National Mortgage-
Mortgage Mortgage Mortgage Backed
Corporation Association Association Securities
Mortgage-Backed
Securities, gross $ 454,711,462 $ 900,782,563 $ 97,423,038 $ 1,452,917,063
Unamortized discount (171,241) (964,133) -- (1,135,374)
Unamortized premium 8,454,547 13,359,448 1,765,457 23,579,452
--------------- --------------- --------------- ---------------
Amortized cost 462,994,768 913,177,878 99,188,495 1,475,361,141
Gross unrealized gains 359,888 1,171,250 -- 1,531,138
Gross unrealized losses (12,091,145) (22,966,353) (4,042,150) (39,099,648)
--------------- --------------- --------------- ---------------
Estimated fair value $ 451,263,511 $ 891,382,775 $ 95,146,345 $ 1,437,792,631
=============== =============== =============== ===============
Gross Unrealized Gross Unrealized Estimated Fair
Amortized Cost Gain Loss Value
Adjustable Rate 971,900,023 1,531,138 (10,306,678) 963,124,483
Fixed Rate 503,461,118 -- (28,792,970) 474,668,148
--------------- --------------- --------------- ---------------
Total $ 1,475,361,141 $ 1,531,138 $ (39,099,648) $ 1,437,792,631
=============== =============== =============== ===============
The adjustable rate Mortgage-Backed Securities are limited by periodic caps
(generally interest rate adjustments are limited to no more than 1% every
six months) and lifetime caps. The weighted average lifetime cap was 11.5%
and 10.6% at December 31, 2000 and 1999.
During the year ended December 31, 2000, the Company realized $2,025,205 in
gains from sales of Mortgage-Backed Securities. During the year ended
December 31, 1999, the Company realized $563,259 in gains from sales of
Mortgage-Backed Securities. Losses totaled $108,477 for the year ended
December 31, 1999. During the year ended December 31, 1998, the Company
realized $3,344,070 in gains from sales of Mortgage-Backed Securities.
Losses totaled $9,964 for the year ended December 31, 1998
3. REPURCHASE AGREEMENTS
The Company had outstanding $1,628,359,000 and $1,338,295,750 of repurchase
agreements with a weighted average borrowing rate of 6.55% and 5.26% and a
weighted average remaining maturity of 29 days and 20 days as of December
31, 2000 and 1999, respectively. At December 31, 2000 and 1999,
Mortgage-Backed Securities actually pledged had an estimated fair value of
$1,668,161,860 and $1,376,684,559, respectively.
F-11
At December 31, 2000 and 1999, the repurchase agreements had the following
remaining maturities:
2000 1999
Within 30 days $ 1,135,886,000 $ 1,197,416,250
30 to 59 days 363,810,000 25,767,000
60 to 89 days 48,845,000 --
90 to 119 days -- 115,112,500
Over 120 days 79,818,000 --
--------------- ---------------
$ 1,628,359,000 $ 1,338,295,750
=============== ===============
4. COMMON STOCK
During the year ended December 31, 2000, 47,499 options were exercised at
$198,762. Also, 894,163 shares were purchased in direct offerings, totaling
$7,392,859. During the year ended December 31, 1999, 57,204 options were
exercised at $233,276. Also, 875,688 shares were purchased in the dividend
reinvestment and share purchase plan, totaling $8,170,602.
During the Company's year ending December 31, 2000, the Company declared
dividends to shareholders totaling $16,333,252, or $1.15 per share, of
which $12,702,507 was paid during the year and $3,630,745 was paid on
January 30, 2001.
During the Company's year ending December 31, 1999, the Company declared
dividends to shareholders totaling $17,977,754, or $1.38 per share, of
which $13,224,293 was paid during the year and $4,753,461 was paid on
January 27, 2000.
5. EARNINGS PER SHARE (EPS)
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting No. 128, Earnings Per Share (SFAS No.
128), which requires dual presentation of basic EPS and diluted EPS on the
face of the income statement for all entities with complex capital
structures. SFAS No. 128 also requires a reconciliation of the numerator
and denominator of basic EPS and diluted EPS computation. For the year
ended December 31, 2000, the reconciliation is as follows:
Year Ended
December 31, 2000
---------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net income $16,587,288
-----------
Basic EPS 16,587,288 14,089,436 $ 1.18
======
Effect of dilutive securities:
Dilutive stock options -- 288,023
----------- ----------
Diluted EPS $16,587,288 14,377,459 $ 1.15
=========== ========== ======
Options to purchase 334,881 shares were outstanding during the year and
were dilutive as the exercise price of between $4.00 and $8.13 was less
than the average stock price for the year of $8.51. Options to
F-12
purchase 568,926 shares of stock were outstanding and not considered
dilutive. The exercise price of between $8.63 and $11.25 was greater than
the average stock price for the year of $8.51.
For the year ended December 31, 1999, the reconciliation is as follows:
Year Ended
December 31, 1999
---------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net income $18,139,280
-----------
Basic EPS 18,139,280 12,889,510 $ 1.41
======
Effect of dilutive securities:
Dilutive stock options -- 564,497
----------- ----------
Diluted EPS $18,139,280 13,454,007 $ 1.35
=========== ========== ======
Options to purchase 708,380 shares were outstanding during the year and
were dilutive as the exercise price (between $4.00 and $8.94) was less
than the average stock price for the year for the Company of $9.58.
Options to purchase 135,676 shares of stock were outstanding and not
considered dilutive. The exercise price (between $10.00 and $11.25) was
greater than the average stock price for the year of $9.58.
For the year ended December 31, 1998, the reconciliation is as follows:
For the Year Ended
December 31, 1998
---------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net income $15,488,923
-----------
Basic EPS 15,488,923 12,709,116 $ 1.22
======
Effect of dilutive securities:
Dilutive stock options 311,532
----------- ----------
Diluted EPS $15,488,923 13,020,648 $ 1.19
=========== ========== ======
Options to purchase 446,084 shares were outstanding during the period (Note
6) and were dilutive as the exercise price (between $4.00 and $8.13) was
less than the average stock price for the year for the Company of $9.36.
Options to purchase 147,676 shares of stock were outstanding and not
considered dilutive. The exercise price (between $10.00 and $11.28) was
greater than the average stock price for the year of $9.36.
6. LONG TERM STOCK INCENTIVE PLAN
The Company has adopted a long term stock incentive plan for executive
officers, key employees and nonemployee directors (the "Incentive Plan").
The Incentive Plan authorizes the Compensation
F-13
Committee of the Board of
Directors to grant awards, including incentive stock options as defined
under section 422 of the Code ("ISOs") and options not so qualified
("NQSOs"). The Incentive Plan authorizes the granting of options or other
awards for an aggregate of the greater of 500,000 shares or 9.95% of the
outstanding shares of the Company's common stock.
The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation cost for the Incentive Plan has
been determined based on the fair value at the grant date for awards
consistent with the provisions of SFAS No. 123. For the Company's pro
forma net earnings, the compensation cost will be amortized over the
vesting period of the options. The Company's net earnings per share would
have been reduced to the pro forma amounts indicated below:
December 31,
---------------------------------------
2000 1999 1998
Net earnings - as reported $16,587,288 $18,139,280 $15,488,925
Net earnings - pro forma 16,468,550 18,010,908 15,280,631
Earnings per share - as reported $1.18 $1.41 $1.22
Earnings per share - pro forma $1.17 $1.40 $1.20
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in the year ended December 31, 2000: dividend
yield of 12.69%; expected volatility of 28.33%; risk-free interest rate of
5.16%; and the weighted average expected lives of nine years. For the year
ended December 31, 1999, dividend yield of 15%; expected volatility of 32%;
risk-free interest rate of 5.61%; and the weighted average expected lives
of seven years. For the year ended December 31, 1998, dividend yield of
10%; expected volatility of 33%; risk-free interest rate of 5.56%; and
expected lives of seven years.
Information regarding options at December 31, 2000 is as follows:
Weighted
Average
Exercise
Shares Price
--------------------
Outstanding, January 1, 2000 844,056 $8.03
Granted ( 36,500 ISOs, 86,000 NQSOs) 122,500 8.00
Exercised (15,250) 9.17
Expired (47,499) 4.18
-------- -----
Outstanding, December 31, 2000 903,807
========
Weighted average fair value of options granted during the year
(per share) $ 0.43
========
F-14
Information regarding options at December 31, 1999 is as follows:
Weighted
Average
Exercise
Shares Price
--------------------
Outstanding, January 1, 1999 593,760 $7.42
Granted (298,068 ISOs, 545,988 NQSOs) 307,500 8.63
Exercised (57,204) 4.08
Expired -- --
-------- -----
Outstanding, December 31, 1999 844,056 $8.03
======== =====
Weighted average fair value of options granted during the year
(per share) $ 0.63
========
Information regarding options at December 31, 1998 is as follows:
Weighted
Average
Exercise
Shares Price
--------------------
Outstanding, January 1, 1998 348,500 $6.42
Granted (240,326 ISOs, 46,500 NQSOs) 289,384 8.17
Exercised (44,124) 4.34
Expired -- --
-------- -----
Outstanding, December 31, 1998 593,760 $7.42
======== =====
Weighted average fair value of options granted during the year
(per share) $ 1.99
========
The following table summarizes information about stock options outstanding
at December 31, 2000:
Weighted Average
Options Remaining Contractual
Exercise Price Outstanding Life (Yrs.)
$ 4.00 65,128 1
7.94 116,250 10
8.13 269,753 8
8.63 300,000 9
8.94 6,250 2
9.06 6,250 3
10.00 131,500 1
10.75 6,250 2
11.25 2,426 2
------- ---
903,807 6.9
======= ===
At December 31, 2000, 1999 and 1998, 341,013, 162,389 and 56,241 options
were vested and not exercised, respectively.
7. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income. Statement No. 130 requires the reporting of
comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting methodology
that includes disclosure of certain financial information that historically
has not been recognized in the calculation of net income. The Company at
December 31, 2000 and 1999 held securities classified as
available-for-sale. At December 31, 2000, the net unrealized losses totaled
$13,044,259 and at December 31, 1999, the net unrealized losses totaled
$37,568,510.
F-15
8. LEASE COMMITMENTS
The Corporation has a noncancelable lease for office space, which commenced
in April 1998 and expires in December 2007.
The Corporation's aggregate future minimum lease payments are as follows:
2001 $ 97,868
2002 100,515
2003 110,261
2004 113,279
2005 116,388
2006 119,590
2007 122,888
---------
Total remaining lease payments $ 780,789
=========
9. RELATED PARTY TRANSACTION
Included in "Other Assets" on the Balance sheet is an investment in Annaly
International Money Management, Inc. On June 24, 1998, the Company acquired
99,960 nonvoting shares, at a cost of $49,980. The officers and directors
of Annaly International Money Management Inc. are also officers and
directors of the Company.
10. INTEREST RATE RISK
The primary market risk to the Company is interest rate risk. Interest
rates are highly sensitive to many factors, including governmental monetary
and tax policies, domestic and international economic and political
considerations and other factors beyond the Company's control. Changes in
the general level of interest rates can affect net interest income, which
is the difference between the interest income earned on interest-earning
assets and the interest expense incurred in connection with the
interest-bearing liabilities, by affecting the spread between the
interest-earning assets and interest-bearing liabilities. Changes in the
level of interest rates also can affect the value of the mortgage-backed
securities and the Company's ability to realize gains from the sale of
these assets.
The Company seeks to manage the extent to which net income changes as a
function of changes in interest rates by matching adjustable-rate assets
with variable-rate borrowings. In addition, although the Company has not
done so to date, the Company may seek to mitigate the potential impact on
net income of periodic and lifetime coupon adjustment restrictions in the
portfolio of mortgage-backed securities by entering into interest rate
agreements such as interest rate caps and interest rate swaps.
Changes in interest rates may also have an effect on the rate of mortgage
principal prepayments and, as a result, prepayments on mortgage-backed
securities. The Company will seek to mitigate the effect of changes in the
mortgage principal repayment rate by balancing assets purchased at a
premium with assets purchased at a discount. To date, the aggregate premium
exceeds the aggregate discount on the mortgage-backed securities. As a
result, prepayments, which result in the expensing of unamortized premium,
will reduce net income compared to what net income would be absent such
prepayments.
F-16
11. SUBSEQUENT EVENT
The Company completed a secondary offerings of 9,800,000 shares of company
common stock on January 29, 2001. The aggregate net proceeds to the Company
after deducting expenses are estimated to be $87.4 million. The
underwriters exercised an option to purchase 1,350,000 additional shares of
common stock to cover over-allotments on February 22, 2001, providing the
Company with additional net proceeds of $12.1 million.
12. SUMMARIZED QUARTERLY RESULTS (UNAUDITED)
The following is a presentation of the quarterly results of operations for
the year ended December 31, 2000.
Quarters Ending
------------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
Interest income from Mortgage-
Backed Securities and cash $24,616,782 $25,734,520 $28,239,125 $31,159,979
Interest expense on repurchase
agreements 19,292,954 21,453,016 24,779,096 27,376,631
----------- ----------- ----------- -----------
Net interest income 5,323,828 4,281,504 3,460,029 3,783,348
Gain on sale of
Mortgage-Backed Securities 106,853 64,774 872,949 980,629
General and administrative
expenses 582,319 507,322 526,881 670,104
----------- ----------- ----------- -----------
Net income $ 4,848,362 $ 3,838,956 $ 3,806,097 $ 4,093,873
=========== =========== =========== ===========
Net income per share:
Basic $ 0.35 $ 0.27 $ 0.27 $ 0.28
=========== =========== =========== ===========
Dilutive $ 0.35 $ 0.26 $ 0.26 $ 0.28
=========== =========== =========== ===========
Average number of shares outstanding:
Basic 13,660,539 14,039,741 14,238,680 14,413,578
=========== =========== =========== ===========
Dilutive 13,971,112 14,631,940 14,529,142 14,702,189
=========== =========== =========== ===========
F-17
The following is a presentation of the quarterly results of operations for
the year ended December 31, 1999.
Quarters Ending
------------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
Interest income from Mortgage-
Backed Securities and cash $22,014,941 $22,264,930 $22,161,272 $23,370,851
Interest expense on repurchase
agreements 17,151,041 16,865,824 17,232,086 18,597,255
----------- ----------- ----------- -----------
Net interest income 4,863,900 5,399,106 4,929,186 4,773,596
Gain on sale of
Mortgage-Backed Securities 64,560 25,853 97,656 266,713
General and administrative
expenses 610,004 561,010 513,600 596,676
----------- ----------- ----------- -----------
Net income $ 4,318,456 $ 4,863,949 $ 4,513,242 $ 4,443,633
=========== =========== =========== ===========
Net income per share:
Basic $ 0.34 $ 0.38 $ 0.35 $ 0.33
=========== =========== =========== ===========
Dilutive $ 0.33 $ 0.37 $ 0.35 $ 0.32
=========== =========== =========== ===========
Average number of shares outstanding:
Basic 12,657,884 12,697,338 12,745,416 13,383,426
=========== =========== =========== ===========
Dilutive 12,952,822 13,110,275 13,025,096 13,992,414
=========== =========== =========== ===========
F-18
The following is a presentation of the quarterly results of operations for
the year ended December 31, 1998.
Quarters Ending
------------------------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
Interest income from Mortgage-
Backed Securities and cash $20,078,721 $23,761,953 $24,008,567 $22,136,390
Interest expense on repurchase
agreements 16,313,474 20,177,580 20,765,301 18,478,925
----------- ----------- ----------- -----------
Net interest income 3,765,247 3,584,373 3,243,266 3,657,465
Gain on sale of
Mortgage-Backed Securities 1,427,084 295,875 993,630 627,517
General and administrative
expenses 484,181 493,718 528,240 599,185
----------- ----------- ----------- -----------
Net income $ 4,708,150 $ 3,386,530 $ 3,708,656 $ 3,685,797
=========== =========== =========== ===========
Net income per share:
Basic $ 0.37 $ 0.27 $ 0.29 $ 0.29
=========== =========== =========== ===========
Dilutive $ 0.36 $ 0.26 $ 0.29 $ 0.29
=========== =========== =========== ===========
Average number of shares outstanding:
Basic 12,727,405 12,757,674 12,704,194 12,648,116
=========== =========== =========== ===========
Dilutive 12,923,195 12,959,771 12,785,765 12,731,192
=========== =========== =========== ===========
******
F-19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ANNALY MORTGAGE MANAGEMENT, INC.
Date: April 23, 2001 By: /s/ Michael A. J. Farrell
Michael A. J. Farrell
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title Date
/s/ KEVIN P. BRADY Director April 23, 2001
Kevin P. Brady
/s/ SPENCER I. BROWNE Director April 23, 2001
Spencer Browne
/s/ KATHRYN F. FAGAN Chief Financial Officer and Treasurer April 23, 2001
(principal financial and accounting officer)
Kathryn F. Fagan
/s/ MICHAEL A.J. FARRELL Chairman of the Board, Chief Executive Officer April 23, 2001
and Director (principal executive officer)
Michael A. J. Farrell
Director
Jonathan D. Green
/s/ TIMOTHY J. GUBA President, Chief Operating Officer and Director April 23, 2001
Timothy J. Guba
/s/ JOHN A. LAMBIASE Director April 23, 2001
John A. Lambiase
Director
Donnell A. Segalas
/s/ WELLINGTON J. ST. CLAIRE Vice Chairman of the Board and Director April 23, 2001
Wellington J. St. Claire
3
EXHIBIT INDEX
Exhibit Exhibit Description Sequentially
Number Numbered
Page
3.1 Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to
the Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with
the Securities and Exchange Commission on August 5, 1997).
3.2 Articles of Amendment and Restatement of the Articles of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form
S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on
August 5, 1997).
3.3 Bylaws of the Registrant, as amended (incorporated by reference to Exhibit 3.3 to the
Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the
Securities and Exchange Commission on August 5, 1997).
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment
No. 1 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913)
filed with the Securities and Exchange Commission on September 17, 1997.
10.1 Purchase Agreement, dated February 12, 1997, between the Registrant and Friedman,
Billings, Ramsey & Co., Inc. ("FBR") (incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-11 (Registration No. 333-32913), filed with the
Securities and Exchange Commission on August 5, 1997).
10.2 Registration Rights Agreement, dated February 12, 1997, between the Registrant and FBR
(incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form
S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on
August 5, 1997).
10.3 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities
and Exchange Commission on August 5, 1997).
10.4 Employment Agreement, effective as of January 27, 1997, between the Company and Michael
A.J. Farrell (incorporated by reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange
Commission on August 5, 1997).
10.5 Employment Agreement, effective as of January 27, 1997, between the Company and Timothy J.
Guba (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on
Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission
on August 5, 1997).
10.6 Employment Agreement, effective as of January 27, 1997, between the Company and Wellington
J. St. Claire (incorporated by reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange
Commission on August 5, 1997).
10.7 Form of Master Repurchase Agreement (incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the
Securities and Exchange Commission on August 5, 1997).
10.8 Form of Purchase Agreement between the Company and the purchasers in the Direct Offering
(incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form
S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on
August 5, 1997).
10.9 Employment Agreement, effective, (incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement to 1997 Form 10-K the fiscal year ended December 31,
1997), effective as of November 1, 1997, between the Company and Kathryn F. Fagan.
10.10 Employment Agreement, effective as of January 1, 2001, between the Company and Jennifer A.
Stephens (incorporated by reference to Exhibit 10.10 to our Form 10-K for the fiscal year
ended December 31, 2000).
23.1 Consent of Independent Accountants.*
* Filed herewith.
4